Wellesley, Mass…Women entrepreneurs who take advantage of every financing opportunity, and who finance creatively, are more likely to reach the rapid growth stage in their businesses, according to research published in Venture Capital Journal (1/06). This is the first research that examines the linkage between types of finance activities used by women entrepreneurs during various stages in the business cycle.
Entitled, The Use of Bootstrapping by Women Entrepreneurs in Positioning for Growth, the authoring team includes Babson College Entrepreneurship Professor Candida Brush and Babson Provost Patricia Greene. Nancy M. Carter, Catalyst Inc. and University of St. Thomas; Elizabeth J. Gatewood, Wake Forest University;and Myra M. Hart, Harvard Business School are the other members of the research team.
Interviews with 88 female entrepreneurs from the technology sector at various stages in the business cycle—emergent, early stage, or rapid growth—revealed that they chose specific finance strategies depending on where they were in the business cycle.
To attract external investors for future growth, entrepreneurs must first prove their business concepts, meet early stage milestones, and demonstrate the value of their businesses. To do this, entrepreneurs use ‘bootstrapping’—internal funding through creative ingenuity—to cut costs, secure resources at no cost, and build knowledge and human resources to speed business development.
Researchers found that entrepreneurs, who learn to bootstrap their businesses effectively, gain legitimacy with investors.
Other Findings from the Study:
- ‘Emergent’ stage businesses reduce capital outlays by cutting labor costs, rather than applying bootstrap activities to speed up product and business development.
- Entrepreneurs in the ‘rapid growth’ stage reduce cost of operations to trim capital expenditures.
- 'Rapid growth’ businesses use both classic financial and bootstrapping strategies to position their ventures for growth. Entrepreneurs continue to use bootstrapping even upon receipt of equity funding, and are more likely to reach rapid growth stage.
Babson’s Greene says that “Bootstrapping is a critical yet largely underdeveloped skill set for women entrepreneurs. This study extends our understanding of the underpinnings of a bootstrapping approach.”
